The share price fell last year prior to COVID due to a few key factors:
When minimum wage went up in Ontario, the restaurant industry reacted by creeping up menu prices. Due to the slowing CDN economy (with CDNs carrying one of the highest debt burdens per capita), traffic slowed. This wasn't unique to just SIR, but to the industry as a whole.
At the same time, competition/supply was increasing, with likes of Chuck's Roadhouse offering low prices/bare bones service and rapidly increasing store counts. THis impacted Jack's yoy comps.
Scaddabush, in its first couple of years, put up huge yoy comp figures, but as these were anniversaried, law of large numbers had an impact.
Canyon Creek Steakhouse has never been able to put up consistent numbers, and comps weighed on overall company results.
Delivery services rolled out in a big way in Ontario, which SIR participated in but which is much less lucrative due to the commission paid to Uber Eats, SKip, DoorDash, and high margin alcohol sales are missed.
In general, and for all restaurants, grocery's ready-food departments continued to expand and provide another alternative for consumers who don't want to cook at home. Canadians are spoiled by both number and quality of our various grocery options.
SIR had increased distributions too rapidly (two bumps within a year) and didn't factor in the competition/slowing traffic, which forced a distribution cut in late 2019.
The business was still run well and generated profits, and was supporting $1.05 in annualized distribution when COVID hit but the factors mentioned above weighed on investor sentiment.
A number of these factors are still relevant and hence, why any thought that this share price can go back to old highs is pretty fanciful. That being said, some positive changes post COVID could be:
(a) Reduced industry competition. Receipe Unlimited talked about this in their latest filing, how the survivors are likely to benefit. Many franchisees have been taken to the woodshed, and won't have the funding or desire to continue expanding units. Not applicable to SIR as no franchised stores. And small restaurants have closed at a considerable pace.
(b) Possibility that SIR could start franchising. SIR doesn't have many units across the country, a total of just 58 I beleive. Partnering with a third party financial to fund an opportunistic approach makes sense to me.
(c) Leasing costs will have come down, and this helps the cost base of the restaurant, meaning that menu prices don't need to be ratcheted up, impacting traffic. In fact, I understand that costs at the margin for a number of line items have waned, a positive.
(d) Canadians will have pent-up demand for restaurant spending, with savings rates at sky high and home equity only having gone up, this stay at home reset could see a sustained rebound in restaurant spending post COVID.
(e) Fowler knows how to manage restaurants and this isn't the first time SIR has been thru turbulence/volatility. Sometimes, you just have to trust the managers in charge to get it right...
I think a return to $8 isn't ridiculous over the next year...